I have been in both Paris and London over the last few days and I would say that the mood here is extremely unsettled. There are two aspects to this unrest. The first is the specter of a kind of 1930’s economic malaise that combines both inflation and currency volatility. The decision yesterday of the Swiss central bank to stop defending the Swiss Franc’s rise against the Euro caused the Swiss market to fall 9% in one day and the Swiss Franc to rise 8% as local traders sold Euros. The general perception is that the European Central Bank is about to embark on a massive “Quantitative Easing” program in order to stop the deflationary trends that are evident everywhere in Europe (with the exception of the Central London property market driven by the influx of money fleeing Russia). The Germans of course cannot get the 1930’s Weimar image of people buying a loaf of bread with a wheelbarrow full of Deutschmarks, and so the thought of printing money to stop deflation fills them with dread.
The central problem of course is that the post 2008 crisis of deleveraging has not played itself out here in the way it has in the United States. In general U.S. Corporate balance sheets are in the best shape in half a century with some companies like Apple, Google and Microsoft having so much cash that they see very little investment opportunity beyond buying back their own shares. That the best Apple could do with its $120 billion pile was to buy a headphone company (Beats) for an inflated $3 billion tells you something. Many Eastern European companies borrowed from Swiss Banks to expand their natural resource and commodity production and now those prices are falling and they will have to repay the loans denominated in francs with devalued local currencies. For Russia the falling oil price has nothing but inflationary crisis signs everywhere.
In the shadow of this economic malaise lies Europe’s second crisis, the Islamic Immigration predicament. The ability of right wing parties in France, England, Germany and Holland to exploit the Charlie Hebdo terror attack will only make a bad situation worse. Here in London the unease with the whole EU project is being exploited by Ukip, the nationalist, anti-immigration party. The coming general election where five parties (Conservative, Labor, Liberal, Green and Ukip) split the vote could make forming a ruling coalition very tricky and could end up looking more like Israeli politics than the world of Winston Churchill. Somehow the French may once again emerge as a model of Liberty, Equality and Fraternity. I think the rallies of last weekend were a model of civility; where Muslims, Jews, Protestants, Atheists, Catholics marched as Citizens of the Republic in solidarity against the barbarity of the Jihadists.
For the U.S., it all has one clear message. We have managed our economy post 2008, far more responsibly than the Europeans, Chinese or the South Americans. Whatever anyone may think of President Obama, we are in a uniquely strong and delevered position in relation to the other world economic powers. But the message that Europe clearly sends is that zero interest rates alone cannot grow us out of the current global stagnation. It’s so clear from this vantage point that our dysfunctional political system needs to do two things in the next year. First, we need to take advantage of falling oil prices to pass a significant national energy tax. There seems to be growing consensus from both Republicans and Democrats alike that now is the time to do this. Then we need to take the billions from those tax revenues and invest them in a massive Marshall Plan to rebuild the crumbling American infrastructure, most of which was built in the 1930’s during the Great Depression. Not a day goes buy when some water main or gas pipeline doesn’t rupture in a major city. Our mass transportation systems are Third World and our bridges are cracking. Putting three million people back to work building this would be an added benefit.
From this perspective “across the pond”, it’s clear that the last 15 years of America playing the global cop in Dick Cheney’s Endless War has spent both our blood and our treasure in a Clash of Civilizations with blowback that we are still unable to contain. John McCain (and maybe even Hillary Clinton) want to continue this war, but my guess is that the average American knows that the task of taming Jihadism lies with the Muslim community itself. No amount of American firepower will bring an end to it and so we should take the opportunity of our new energy independence to pull back from George Washington’s dreaded “foreign entanglements” and rebuild our own republic.